The Speed of the Market

The old adage, “Everything sells eventually,” is meant to give a little hope to the real estate agent working on a difficult listing that just will not move. Unfortunately, “eventually” can sometimes take longer than anybody could have imagined, especially in commercial real estate.

I’ll admit to being a bit envious when I review local residential sales data and learn that the average days on market is down to around 90 days. Meanwhile, of the estimated 300 active commercial sale listings in the Lynchburg MSA, roughly 50 percent have already been on the market for longer than a year. Average marketing times for sold commercial real estate in our market hover right around 12 months. This means that a brand new commercial real estate agent could land a great listing in their first week, which is no easy feat, and still be, on average, a year away from any potential compensation. Many aspiring agents lose hope and drop out of the business within the first two years because the speed of the market exhausts their patience and their savings long before the sales start to come. Not knowing the speed of your market or disregarding it altogether in hopes of being the exception will likely end in frustration for all parties involved. To achieve the best real estate outcomes, every agent and owner must learn the speed of their market and plan accordingly.

What tends to sell quicker?
• Well-priced properties. It doesn’t matter how great your property is if you miss the mark here.
• Modern, well-maintained buildings ready for occupancy.
• Properties in prime, high-demand locations.
• Leased properties with steady cash flow like a retail property with a long-term lease to a credit tenant or an apartment complex with a consistent operating history. In our market, multi-family sales have an average marketing time of five months as steady rental income appeals to a broad and active group of investors.

What tends to sell slower?
• Properties that need extensive repairs, renovations or a change of use.
• Problem properties with physical, legal, environmental or location issues.
• Special use or unique properties where the pool of possible buyers is much smaller. For example, a specialized industrial property that only a dozen businesses or buyers in that market could possibly have an interest in owning.
• Land, which is the ultimate blank canvas in real estate. Land of all types currently has an average marketing time of 11 months in our market.

Essentially, anything that requires imagination or creativity from the buyer will probably take more time to sell.

Pre-Listing: For the agent—educate your client about the speed of the market before you take the assignment. Your client has expectations about how long this process will take, even if they are unspoken. Don’t set yourself up for failure by letting your client assume that a commercial warehouse will move just as quickly as a three-bedroom house in a great neighborhood. I know of several properties that were on the market for several years up to a decade before selling, but the owner never thought the broker was doing a bad job along the way because both of them were aligned in their understanding that it would take time to arrive at the best outcome. Owners—ask potential agents about the speed of the market and insist on a realistic view.

Listing: Use a listing agreement that matches the speed of the market. Six-month listing agreements are typical for residential properties in our area, but I have seen some three- and four-month listing agreements recently for the simple reason that 70 percent of residential sales occur within the first four months. Conversely, the most common listing period for commercial real estate that I see is an initial one-year term with automatic extensions. Agents, give yourself enough time to deliver the result your client desires.

Pricing: Most real estate appraisals typically include an estimate of marketing time that is arrived at by reviewing comparable market data. The estimate includes a crucial assumption that “the property has been appropriately priced.” Translation: All bets are off on the estimated marketing time if you overprice your property. Selling a significantly overpriced property takes time because something must fundamentally change: either the market comes up to your price, you come down to the market price, or there’s a meeting somewhere in between. No one wants to underprice their property and leave money on the table, but a premium price can take a while as you wait for the optimum buyer. For those owners that aren’t highly motivated and don’t have to sell, patiently waiting for the price you want is a perfectly reasonable course of action. For the owner seeking a sale sooner rather than later, use a professional to determine your market value so that you can make an informed pricing decision.

Every market moves at its own speed. Find out the speed of your market. Plan accordingly.

About The Author

Billy Hansen, MAI serves the Lynchburg area as the principal commercial real estate appraiser of Hansen Realty Advisors, LLC and as an agent with Cushman & Wakefield l Thalhimer. Email him at hansenrealtyadvisors@gmail.com.